MORTGAGE FRAUD

General Overview

The increased reliance by both financial institutions and non-financial institution lenders on third-party brokers has created opportunities for organized fraud groups, particularly where mortgage industry professionals are involved.

Combating significant fraud in this area is a priority, because mortgage lending and the housing market have a significant overall effect on the nation's economy. All mortgage fraud programs were recently consolidated within the Financial Institution Fraud Unit, even where the targeted lender is not a financial institution. This consolidation provides a more effective and efficient management over mortgage fraud investigations, the ability to identify and respond more rapidly to emerging mortgage fraud problems, and a better picture of the overall mortgage fraud problem.

Each mortgage fraud scheme contains some type of "material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase or insure a loan." The Mortgage Bankers Association projects $2.5 trillion in mortgage loans will be made during 2005. The FBI compiles data on mortgage fraud through Suspicious Activity Reports (SARs) filed by federally-insured financial institutions, and Department of Housing and Urban Development Office of Inspector General (HUD-OIG) reports. The FBI also receives complaints from the mortgage industry at large.

A significant portion of the mortgage industry is void of any mandatory fraud reporting. In addition, mortgage fraud in the secondary market is often under reported. Therefore, the true level of mortgage fraud is largely unknown. The mortgage industry itself does not provide estimates on total industry fraud. Based on various industry reports and FBI analysis, mortgage fraud is pervasive and growing.

The FBI investigates mortgage fraud in two distinct areas: Fraud for Profit and Fraud for Housing. Fraud for Profit is sometimes referred to as "Industry Insider Fraud" and the motive is to revolve equity, falsely inflate the value of the property, or issue loans based on fictitious properties. Based on existing investigations and mortgage fraud reporting, 80 percent of all reported fraud losses involve collaboration or collusion by industry insiders. Fraud for Housing represents illegal actions perpetrated solely by the borrower. The simple motive behind this fraud is to acquire and maintain ownership of a house under false pretenses. This type of fraud is typified by a borrower who makes misrepresentations regarding his income or employment history to qualify for a loan.

The defrauding of mortgage lenders should not be compared to predatory lending practices which primarily affect borrowers. Predatory lending typically effects senior citizens, lower income and challenged credit borrowers. Predatory lending forces borrowers to pay exorbitant loan origination/settlement fees, sub-prime or higher interest rates, and in some cases, unreasonable service fees. These practices often result in the borrower defaulting on his mortgage payment and undergoing foreclosure or forced refinancing.

Although there are many mortgage fraud schemes, the FBI is focusing its efforts on those perpetrated by industry insiders. The FBI is engaged with the mortgage industry in identifying fraud trends and educating the public. Some of the current rising mortgage fraud trends include: equity skimming, property flipping, and mortgage related identity theft. Equity skimming is a tried and true method of committing mortgage fraud. Today's common equity skimming schemes involve the use of corporate shell companies, corporate identity theft, and the use or threat of bankruptcy/foreclosure to dupe homeowners and investors. Property flipping is nothing new; however, once again law enforcement is faced with an educated criminal element that is using identity theft, straw borrowers and shell companies, along with industry insiders to conceal their methods and override lender controls.

Property flipping is best described as purchasing properties and artificially inflating their value through false appraisals. The artificially valued properties are then repurchased several times for a higher price by associates of the "flipper." After three or four sham sales, the properties are foreclosed on by victim lenders. Often flipped properties are ultimately repurchased for 50 - 100 percent of their original value.

Since 1999, the FBI has been working to actively investigate mortgage fraud in various cities across the United States. The FBI also focuses on fostering relationships and partnerships with the mortgage industry to promote mortgage fraud awareness. To raise awareness of this issue and provide easy accessibility to investigative personnel, the FBI has provided points-of-contacts to relevant groups including the Mortgage Bankers Association (MBA), the Mortgage Asset Research Institute, the Mortgage Insurance Companies of America, Fannie Mae, Freddie Mac, and others.

TRAINING

Association of Certified Fraud Examiners

18th Annual ACFE Fraud Conference and Exhibition

Orlando, FL • July 15-20
Disney’s Coronado Springs Resort
www.FraudConference.com

Tampa Bay Chapter

Dinner Meetings

March 13, 2007
Darrin Morgan, Assistant Vice President, Special Investigations Unit, Fifth Third Bank, Cincinnati, OH

April 10, 2007
Steve Hooper, Sr. Auditor,
Hillsborough County, Clerk of the Circuit Court

8th Annual Fraud & Computer Crimes Seminar

May 8-9, 2007
Ruth Eckerd Hall
Clearwater, Florida1111 McMullen Booth Road
Clearwater, FL 33759

2005 - 2006
OFFICERS & DIRECTORS

PRESIDENT
Christine Dever, CPA, CFE
Accountabilties Consulting Services
(813) 417-1825

VICE PRESIDENT
Gary Chapman, CFE, CGAP
City of Tampa, Internal Audit
(813) 274-7163

SECRETARY
William H. Miles, CFE
Florida Department of Law Enforcement
(863) 701-1474

TREASURER
Laura Krueger Brock, CPA, CFE
Cherry, Bekaert, Holland, LLP
(727) 822-8811

DIRECTOR
Mark Dubina, CFE
Florida Department of Law Enforcement
(813) 878-7366

DIRECTOR
Ellen Wilcox, CFE
Florida Department of Law Enforcement
(727) 298-2482

DIRECTOR
Steve Hooper, CIA, CFE, CCSA
Clerk of the Circuit Court Hillsborough County, FL
(813) 276-2029 x3703

CHAPTER TRAINING
Wayne Boytim, CFE
City of Tampa, Internal Audit
(813) 274-7167

The FBI has also been working to establish broader SAR reporting requirements for mortgage lenders who do have adequate protection under the current safe harbor provisions. The FBI is collaborating with the mortgage industry and Financial Crimes Enforcement Network to create a more productive reporting requirement for mortgage fraud. The FBI has also been working with the mortgage industry through the MBA to promote a more efficient and effective method of identifying and reporting fraudulent mortgage activity, otherwise known as, the Suspicious Mortgage Activity Report (SMARt Form) concept.

The FBI works closely with individual lenders, as well as national associations such as the MBA, the Appraisal Institute, the National Association of Mortgage Brokers, and the National Notary Association, to define and combat the mortgage fraud problem. In addition, on a case-by-case basis, the FBI receives close cooperation from lenders. An example of this is the usage of Real Estate Owned properties from lender inventories to facilitate mortgage fraud undercover operations (UCO). In December 2003, the FBI initiated an UCO to address the massive amount of mortgage fraud in the Jacksonville area. On September 16, 2004, as a result of this investigation, seven search warrants were executed and two arrests were made. Mortgage broker J.R. Parker and closing attorney Dale Beardsley, were arrested via complaint, charging them with bank fraud for their role in this alleged scheme. This UCO was made possible by the close cooperation of a local financial institution. This type of cooperation happens around the country and is a key component in the FBI's approach to this growing crime problem.

A recent analysis of mortgage industry fraud surveys identified 26 different states as having significant mortgage fraud problems. Although every survey identified Georgia and Florida as having significant mortgage fraud related investigations, the survey also identified nine other states in the South and Southwest, seven states in the West and five states in the Midwest as having mortgage fraud problems.

Source: http://www.fbi.gov/

News from the ACFE

Combating Mortgage Fraud: A New ACFE Webinar!

The FBI’s Financial Crimes Report to the Public identified mortgage fraud as “persuasive and growing” and noted that combating this type of fraud is a priority. The report found that “a recent analysis of mortgage industry fraud surveys identified 26 different states as having significant mortgage fraud problems.”

The ACFE's new webinar, Combating Mortgage Fraud, will be held March 15, 2007 at 2:00 p.m. (EST). This course will provide you with information and updates that will help you identify mortgage fraud and make you more effective in its prevention, detection and investigation. Register today.

ACFE Career Center

The ACFE Career Center is THE most comprehensive source of career information for anti-fraud professionals. Job seekers: Let jobs come to you by posting your resume on our Job Bank or searching the continually expanding pool of anti-fraud related job postings. Employers: Target your talent search! Search resumes for FREE, identify those that are a good match and only pay for the resume if the job seeker is interested in your opportunity!

NEW! The Handbook of Fraud Deterrence

Stop fraud before it can happen to you! The Handbook of Fraud Deterrence equips you with the tools needed to prevent fraud in your organization. Divided into three sections -"The Professional Environment of Fraud Deterrence,""Tools of Fraud Deterrence" and "Applications of Fraud Deterrence," - this book is an essential resource for any anti-fraud professional working with internal control systems!

$79 ACFE Member Price / $89 Non-Member

Chapter News

8th Annual Fraud & Computer Crimes Seminar

The speakers are booked, Ruth Eckerd Hall is reserved, and the registration forms are now available. All you have to do is register. Please visit our website at: http://tampabaycfe.org/seminar.htm

Chapter Elections

It is that time of year again . . . Chapter Elections. Chapter CFEs and Associate Members are eligible to vote. Please cast your ballot by visiting http://tampabaycfe.org/ballot.htm. The results will be announced at the Chapter's Annual Meeting on April 10, 2007.

Student Scholarships

Three outstanding students were selected by the Chapter Board of Directors to receive a $500 student scholarship.  They are Lisa Reed, Katie Shald, and Anthony Scuotto:

Lisa Reed is a graduate student in the Master of Science in Accounting program at USF.  She is a May 2006 graduate from USF with a Bachelor of Science in Accounting.  In addition to excelling in the classroom, earning a 3.3 GPA at both undergraduate and graduate course work, Lisa has expressed an interest in fraud examination work and earning CFE certification.  She has taken several elective classes that will assist developing her technical skills practicing as a CFE.  Lisa is keenly interested in the ethical and integrity issues that surrounded corporate frauds such as Enron and WorldCom.

Katie Shald is in her third year as an undergraduate at the University of Tampa pursuing a Bachelor of Science in Accounting degree.  She is a member of the UT Swimming team, earning All American status as a freshman.  Katie is active in the Beta Alpha Psi Chapter at UT, currently holding the office of Secretary.  In addition to her active participation in the BAP and as a student athlete, Katie’s academic success, earning a 3.34 GPA, is noteworthy.

Anthony Scuotto will earn his Bachelor of Science in Accounting from the University of Tampa this May.  He has been very active in the Alpha Beta Psi since the program first started in 2004.  Anthony retuned as the President this year after holding the office in 2006.  Under his leadership, the organization has grown, having doubled in size.  Upon graduation, Anthony plans to enter graduate school seeking a Masters of Science in Accounting degree.  His academic achievement, earning a 3.66 GPA, while holding a key leadership role in the BAP, in addition to working part-time is extraordinary.

Two New CFEs

Lynn Zimmerman, a consultant with the Axiom Professional Group, was notified by the ACFE that she passed the CFE Examination in January 2007. 

Johnnie Huneycutt, a Senior Corporate Investigator with TECO Energy, passed the CFE Examination in December 2006.

Congratulations to Lynn and Johnnie.

Tampa Bay Chapter Directory

The membership directory of the Tampa Bay Chapter is available at:

2007 Membership Directory (Adobe Reader format)

Dinner Meeting News

Our next Dinner Meeting is scheduled for March 13th

The dinner meeting will be held at the Westshore Hotel (Best Western), located at 1200 N. Westshore Boulevard in the Hyde Park Room (first floor). The hotel is just north of I-275 and Cypress Avenue on the east side of Westshore (map). Evenings will begin with a social at 6:00 P.M., followed by a buffet dinner at 6:30 and a presentation at 7:00. The cost is $20, payable at the door.

To make your reservation, please use the following link Chapter Meeting Reservation and complete the form at the bottom of the page.  You can also make your reservation by emailing Wayne Boytim or calling him at (813) 274-7167 by the Friday before the meeting date.

NEW POLICY: Reservations will NOT be accepted after 1:00 PM Friday afternoon. Walk-ups will be accommodated only if space is available.

Please remember that cancellations are accepted up to the afternoon of the meeting. No shows will be billed after the second missed meeting. Please help us keep our costs down by letting us know if you are unable to attend.

January 9th Dinner Meeting

The February Dinner Meeting was well attended and several new faces were in the audience. We would like to welcome and recognize those attending their first meeting:

Jackie Biro – Protiviti
Brenda Tyler – Hillsborough County Clerk of Circuit Court
Consuelo Herrea – Forensic Technology
Peter Jannis – Jacobs Engineering
Matthew Keating – Waters CPA Group
John Garcia - Citigroup
Sherrie Slom
Lynn Zimmerman (our newest CFE) – Axiom Professional Group

Chapter President Christine Dever opened the meeting and announced to all that nominations for Officers in the next Chapter year are being accepted. Anyone interested in serving or wanting to nominate someone should contact Wayne Boytim as soon as possible. Ballots should be posted on the Web site in early March.

President Dever also mentioned the upcoming 8th Annual Fraud & Computer Crimes Seminal that the Chapter will host on May 8th and 9th, 2007. This will again be held at the Ruth-Eckerd Hall located at 1111 McMullen-Booth Road, Clearwater, Florida 33759. Registration forms can be found on the Chapter Web site. This years speakers and topics are top notch and a large turn out is expected. Please register early. Hotel information is also posted on the Chapter Web site.

Three outstanding area students were selected by the Chapter Board of Directors to receive a $500 student scholarship. Scholarship checks were presented to Lisa Reed, Katie Shald and Anthony Scuotto.

The Speaker for the evening, Todd Spear, Fire Marshall for the City of Tampa, presented “Arson…for fun and profit”. Todd’s presentation was fact filled and informative and focused on the ongoing and growing problems of arson. The difficulty of arson investigations was revealed and Todd noted that only about 17% of arson cases are solved. In 2005 there was a 10.6 billion dollar direct loss due to fires and arson.

The next dinner meeting is scheduled for March 13, 2007.

Submitted by Bill Miles, Chapter Secretary

MORTGAGE FRAUD INDICATORS

Inflated Appraisals
• Exclusive use of one appraiser

Increased Commissions/Bonuses - Brokers and Appraisers
• Bonuses paid (outside or at settlement) for fee-based services
• Higher than customary fees

Falsifications on Loan Applications
• Buyers told/explained how to falsify the mortgage application
• Requested to sign blank application

Fake Supporting Loan Documentation
• Requested to sign blank employee or bank forms
• Requested to sign other types of blank forms

Purchase Loans Disguised as Refinance
• Purchase loans that are disguised as refinances requires less documentation/lender scrutiny

Investors-Short Term Investments with Guaranteed Re-Purchase
• Investors used to flip property prices for fixed percentage
• Multiple "Holding Companies" utilized to increase property values
 

COMMON MORTGAGE FRAUD SCHEMES

Property Flipping - Property is purchased, falsely appraised at a higher value, and then quickly sold. What makes property illegal is that the appraisal information is fraudulent. The schemes typically involve one or more of the following: fraudulent appraisals, doctored loan documentation, inflating buyer income, etc. Kickbacks to buyers, investors, property/loan brokers, appraisers, title company employees are common in this scheme. A home worth $20,000 may be appraised for $80,000 or higher in this type of scheme.

Silent Second - The buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage. The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed. The second mortgage may not be recorded to further conceal its status from the primary lender.

Nominee Loans/Straw Buyers - The identity of the borrower is concealed through the use of a nominee who allows the borrower to use the nominee's name and credit history to apply for a loan.

Fictitious/Stolen Identity - A fictitious/stolen identity may be used on the loan application. The applicant may be involved in an identity theft scheme: the applicant's name, personal identifying information and credit history are used without the true person's knowledge.

Inflated Appraisals - An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. The report inaccurately states an inflated property value.

Foreclosure Schemes - The perpetrator identifies homeowners who are at risk of defaulting on loans or whose houses are already in foreclosure. Perpetrators mislead the homeowners into believing that they can save their homes in exchange for a transfer of the deed and up-front fees. The perpetrator profits from these schemes by remortgaging the property or pocketing fees paid by the homeowner.

Equity Skimming - An investor may use a straw buyer, false income documents, and false credit reports, to obtain a mortgage loan in the straw buyer's name. Subsequent to closing, the straw buyer signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later.

Air Loans - This is a non-existent property loan where there is usually no collateral. An example of an air loan would be where a broker invents borrowers and properties, establishes accounts for payments, and maintains custodial accounts for escrows. They may set up an office with a bank of telephones, each one used as the employer, appraiser, credit agency, etc., for verification purposes.

Mortgage Fraud Prevention Measures

General Fraud Tips

Mortgage Fraud is a growing problem throughout the United States. People want to believe their homes are worth more than they are, and with housing booms going on throughout the U.S., there are people who try to capitalize on the situation and make an easy profit.

Tips to protect you from becoming a victim of Mortgage Fraud

• Get referral for real estate and mortgage professionals. Check the licenses of the industry professionals with state, county, or city regulatory agencies.
• If it sounds too good to be true, it probably is. An outrageous promise of extraordinary profit in a short period of time signals a problem.
• Be wary of strangers and unsolicited contacts, as well as high-pressure sales techniques.
• Look at written information to include recent comparable sales in the area, and other documents such as tax assessments to verify the value of the property.
• Understand what you are signing and agreeing to--If you do not understand,
re-read the documents, or seek assistance from an attorney.
• Make sure the name on your application matches the name on your identification.
• Review the title history to determine if the property has been sold multiple times within a short period--It could mean that this property has been "flipped" and the value falsely inflated.
• Know and understand the terms of your mortgage--Check your information against the information in the loan documents to ensure they are accurate and complete.
• Never sign any loan documents that contain blanks--This leaves you vulnerable to fraud.
• Check out the tips on the Mortgage Bankers Association's (MBA) website at http://www.StopMortgageFraud.com for additional advice on avoiding mortgage fraud.

President's Message

Thank you to Fire Marshal Todd Spear, our speaker for the February 2006 meeting. His presentation was well received and generated many interesting questions and comments. We look forward to having him in the future as a speaker as it is clear that there is so much more to the challenges that the fire investigators face in the fight against fraud.

Congratulations to our scholarship winners: Lisa Reed, Katie Shald, and Anthony Scuotto. We wish you much success in the future and hope to see you continue active involvement in our chapter as future leaders in the prevention of fraud.

It is hard to believe we are already in March, the year is flying by and there is so much we want to accomplish. We have two more dinner meetings and encourage all of you to bring colleagues who are interested in our area and will add to our membership experience and fulfillment of our mission. Our two day seminar is filled with many excellent speakers with interest and current topics on fraud and fraud prevention. Please visit our website for the updated details.

We look forward to seeing you at the meetings and seminars.

Thank you.

Christine A. Dever, CPA, CFE